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Inequality: government is a perp, not a bystander

December 28, 2013 4 comments

from Dean Baker

In his speech on inequality earlier this month President Obama proclaimed that the government could not be a bystander in the effort to reduce inequality, which he described as the defining moral issue of our time. This left millions convinced that Obama would do nothing to lessen inequality. The problem is that President Obama wants the public to believe that inequality is something that just happened. It turns out that the forces of technology, globalization, and whatever else simply made some people very rich and left others working for low wages or out of work altogether. The president and other like-minded people feel a moral compulsion to reverse the resulting inequality. This story is 180 degrees at odds with the reality. Inequality did not just happen, it was deliberately engineered through a whole range of policies intended to redistribute income upward.  Read more…

Inequality is political

November 14, 2013 30 comments

from Peter Radford

Let me end the week by tying a few things together. Bear with me.

First, I have spent some time talking about inequality. I see this as our greatest long term issue, but more in terms of politics than economics. Why? Because the extent of inequality in society is something we choose through our political action or inaction. There will always be some degree of inequality. I see that a a fact of life. Asymmetries abound. Inconsistencies, mistakes, and plain dumb luck all conspire to make the distribution of society’s spoils a very lumpy and uneven affair. This we cannot change. But we can, I believe, expand or contract the difference between top and bottom if we so choose. There is no “natural” level of inequality, it is entirely a function of policy.

With that said, I see our current level as both morally unacceptable and socially disruptive.

I will leave the moral commentary as self explanatory: there is no way our CEO’s can justify their disproportionate share of the spoils. It was not long ago that they were satisfied with much less. Only in the past few decades has it become socially acceptable for them to rake in what they do now.

As for the social impact, I see two vectors through which damage is done. Read more…

Categories: Political Economy

Unequal austerity and its economics

November 7, 2013 24 comments

from Peter Radford

Inequality is much discussed nowadays. Pundits of all political stripes are weighing in on its causes and on its effects. As usual there is no agreement. So, also as usual, I suspect there will be no action.

This is not a new problem, nor is it trivial. The steadily increasing privilege afforded capital – higher profits, dividends, and rents, and the consequent steady erosion of the rewards to work – wages and salaries, have been accumulating beneath the surface for decades. I believe that in the years ahead the emergence of our highly unequal society will be the hallmark of the entire Reaganite era.

I don’t think this problem is as complicated as some people make it out to be. It is a direct consequence of the shift in the dominant economic theory that infuses our decision making across all relevant domains of activity in our economy. It was an intentional consequence. It was not, as Bill Gross tries to make sound, a happy accident of being alive at the right moment. If you’re  capitalist that is. If you’re a regular worker, then tough.

What happened?

Well, back before the shift took place the dominant economic theory guiding decision making was the post-war version of Keynesianism. It seemed to explain things well, and seemed to produce excellent results: the western world bounced back from its wartime trauma and produced a golden age of growth that propelled living standards, wages, and profits all together.

Then it hit a snag. Read more…

Edward Snowden and Financial Speculation Taxes

July 23, 2013 6 comments

from Dean Baker

In the last few weeks Edward Snowden has been holed in Moscow’s airport trying to negotiate terms of asylum with various countries around the world. Thus far it doesn’t seem that Snowden has been able to find any acceptable offers.

Part of the reason is that the United States government has been openly threatening governments that are considering offering asylum, warning of dire consequences. Governments throughout the world take these threats seriously.

In fact, governments take threats from the United States very seriously. France and Portugal both broke with international conventions a few weeks back and refused to allow Bolivia President Evo Morales to use their airspace because the Obama administration had heard rumors that Snowden was on board his plane.

Clearly when something matters to the United States government, it is willing to go to extraordinary lengths to get what it wants. And even relatively powerful countries like France quickly bow to its wishes, even when it means breaking with well-established international protocols.

This is important background for understanding the effort in Washington to block financial speculation taxes. Read more…

Categories: Political Economy

Wall Street Journal turns news section over to the financial industry

July 18, 2013 Leave a comment

from Dean Baker

Everyone knows that the Wall Street Journal has a strong pro-rich perspective in its opinion pages. Its guiding philosophy is a dollar in a pocket of a poor or a middle class person is a dollar that could be in the pockets of the rich. But its news section is mostly reasonably fair.

That may no longer be the case. The financial industry is on the warpath against a financial transaction tax in Europe. The proposed tax would be 0.1 percent on stock trades (one fifth the size of the tax that has been in place for centuries in the United Kingdom) and 0.01 percent on transfers on most of options, futures, and most other derivatives.

Since the price of trading has plummeted over the last four decades due to developments in computer technology, this tax would just raise trading costs back to where they were ten or twenty years ago. That would not seem to be too horrible on its face, since Europe certainly had a well-developed and active capital market in 2000 or even 1990.

But the financial industry needs to scare people in order to discourage Europe from going the route of the tax. So Read more…

Categories: Political Economy

Rethinking Keynes’ non-Euclidian theory of the economy

July 10, 2013 60 comments

from Fred Zaman

“In his General Theory, John Maynard Keynes stated that classical economists ‘resemble Euclidean Geometers in a non Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight—as the only remedy for the unfortunate collisions which are occurring. Yet in truth there is no remedy except to throw over the axiom of parallels and to work out a non Euclidean geometry. Something similar is required today in economics.’” (Paul Davidson, The Keynes Solution, Ch. 4)

In this Euclidean analogy with the classical analysis of free
markets, which is based on “efficient market theory,” Davidson explains that
full employment is the Euclidean equivalent of parallel lines which never meet.
He nonetheless notes, however, that in the real world these lines, although
parallel in an Euclidean analogy with economics, nevertheless unfortunately do
often meet, thereby significantly and persistently producing economic
“collisions” understood as unemployment; the blame for which collisions always
is placed on workers for not passively accepting lower wages, and consequently
also a lower standard of living. Keynes’s solution, Read more…

The meaning of Aaron Swartz

January 15, 2013 1 comment

from Peter Radford

This weekend has seen a flurry of comment about Aaron Swartz, whose recent suicide has set me thinking about the way in which society is dogged by bureaucracy that serves either itself or a limited elite. So many of the rules that beset us all on a daily basis exist only to protect the interests of those with access to power. The rest of us are left to flounder on our own, and to conform as best we can to the contours of society as we find them. Our ability to shape those contours is minimal.As a result, we have precious few moments when our voices really matter.

Swartz was no anarchist. He was a liberal and someone who understood that most bureaucracy is a thin veil drawn over deep seated power structures.

He was being threatened by a massive legal challenge in Massachusetts. Read more…

Categories: Political Economy

Will the Romney campaign lead Democrats to adopt better economics?

August 15, 2012 2 comments

from Dean Baker

Now that Representative Paul Ryan has been added to the ticket we’ll have to see the extent to which Governor Romney embraces his running mate’s rather extreme economic positions. But earlier in the week, the Romney economic team made its first effort to argue for the merits of Romney’s somewhat more moderate economic plan. It went down in flames.

The basic problem is that they have an impossible story. They want to try to blame President Obama for the current weakness of the economy. Their argument of necessity focuses on the weakness of the recovery since their guy, President Bush, was calling the shots went things fell apart. This inconvenient fact means that the Romney crew can’t focus on the real problem, the severity of the downturn. Read more…

Weekend Thoughts

July 22, 2012 8 comments

from Peter Radford

Some quick thoughts for a summer weekend:

I am reading Richard Posner’s book: “The Crisis of Capitalist Democracy”. He and I do not agree on much, if anything, but the book is s decent read and gives a perspective worth knowing. But I could not avoid choking on my coffee when he describes the activities and policy decisions way back during the height of the crisis. Various actions were considered, most dismissed as inappropriate. My favorite, nationalization, was knocked down early. Why? Let Posner tell us:  Read more…

Eurozone austerity faces increasing political challenges as economy worsens

from Mark Weisbrot

It has become a ritual: every six months I debate the IMF at their annual meetings, most recently represented by their Deputy Director for Europe. It takes place in the same room of that giant greenhouse-looking World Bank building on 19th Street in Washington, D.C. And the IMF’s defense of its policies in the eurozone is not getting any stronger.

Maybe it’s because most economists at the IMF don’t really believe in what they are doing. The Fund is, after all, the subordinate partner of the so-called “Troika” – with the European Commission and the European Central Bank (ECB) calling the shots. And most Fund economists know their basic national income accounting: fiscal tightening is going to make these economies worse, as it has been doing. Those that have tightened their budgets the most, e.g. Greece and Ireland, have shrunk the most – as would be predicted. The Spanish government, which today announced a 52 percent unemployment rate among its youth, has projected that the planned budget tightening for this year would by itself take 2.6 percentage points off of 2012 growth. Read more…

Argentina’s critics get it wrong again

April 20, 2012 21 comments

from  Mark Weisbrot

The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF, has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press.

We have heard all this before. When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, the economy would spiral downward into deeper recession.

Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere. Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled. Read more…

Categories: Political Economy

Mélenchon could change French politics with strong showing

April 11, 2012 4 comments

from Mark Weisbrot

France’s conservative President, Nicolas Sarkozy, ran for office in 2007 on a program of making the French economy more like that of the United States. He picked a bad time for that: the U.S. was on the brink of its worst recession since the Great Depression, and would help drag down Europe and much of the world economy as the American economy collapsed. He probably wouldn’t want to say these things today, after the U.S. has had four years with hardly any economic growth at all.

But Sarkozy did succeed in making the French economy more like the U.S. in some ways. After being one of the few high-income countries that didn’t have an increase in inequality from the mid-1980s to the mid-2000s, France has become more unequal since Sarkozy was elected. For example, Read more…

Categories: Political Economy

Forbes’ update on the state of plutonomy or “democracy for the few”

March 30, 2012 15 comments

from Edward Fullbrook

The current Forbes, the bi-weekly of The One Percent, features an update on the current state of what it, like Citigroup, calls plutonomy.  Also called by its insiders “democracy for the few”, this is the basic economic-political reality of our time, which one-percenters chat about daily and which the rest of us generally pretend doesn’t exist.  Skeptics of the analysis of plutonomy offered in “The Political Economy of Bubbles” in the current issue of RWER are encouraged to read Forbes’ plutonomy update.   Below is a taster. 

The new “us versus them” is not like the racism of colonial times. This is starkly different. It’s the 99% versus the 1%, . . . Read more…

Plutonomy Bubble Number Three

March 24, 2012 15 comments

The new political economy of the Eurozone

March 17, 2012 25 comments

I might be boring the pants off you with my European Central Bank Posts – but what’s happening in Europe is going very fast and it’s important. Power (lots of it) is shifting towards Frankfurt and Brussels. How will this power be used?

First, the shift. A quote from a recent speech from José Manuel González-Páramo, member of the board of the European Central Bank: Read more…

“toxic and destructive” Goldman Sachs and the Obama administration

March 15, 2012 13 comments

from Edward Fullbrook

As you may have heard in the news, yesterday one of the key directors of Goldman Sachs, Greg Smith, published in the New York Times his long letter of resignation.  It begins:

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

Given the degree of attention that the international media is today giving this mini event, it seems appropriate to republish here a table from my RWER paper, published on Monday, “The Political Economy of Bubbles”.  The table below, which is largely based on an article by fflambeau, details 32 relationships, financial and otherwise, between Goldman Sachs people (“morally bankrupt” says Smith) and the Obama Administration. Read more…

The Plutonomy Reports

March 14, 2012 1 comment

from Edward Fullbrook

On this blog, posts dealing with plutonomy have consistently been the most heavily viewed. Given this interest, here is one of several sections on plutonomy from my paper “The Political Economy of Bubbles” in the new issue of Real-World Economics Review. It is centered on the three Citigroup Plutonomy Reports. Read more…

Categories: Political Economy, RWER

Why Free-Market Economics is a Fraud

December 18, 2011 32 comments

from Ian Fletcher

If there’s one thing everyone in America knows, it’s that free-market economics is true and free markets are best. 

After all, we’re not communists, are we? They starved and lost the Cold War because they believed otherwise. And their watered-down European cousins the socialists? More of the same, only less so. Even liberals get this nowadays. All hail the free market! 

Trouble is, things “everyone” knows are often wrong. And this is no exception.

It’s time to start getting honest about a very simple fact: Nobody, but nobody, really believes in free markets. That’s right. Not the Republican Party, not the libertarians, not the Wall Street Journal, nobody.  Read more…

Categories: Political Economy

Regime change (Gini chart)

December 15, 2011 1 comment

from John Schmitt

Over the last decade, as economic inequality in the United States was growing, income inequality was on the decline in most of Latin America. In March, economists Darryl McLeod and Nora Lustig circulated a working paper (pdf) arguing that, in Latin America, the “social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela.” Read more…

Politics Matter

November 23, 2011 3 comments

from John Schmitt

In a new CEPR report (pdf), Alexandra Mitukiewicz and I argue that the national political environment, not globalization or technology, is the most important factor driving long-run changes in unionization rates in the United States and other rich economies.

Since 1980, changes in union coverage (the share of the workforce covered by a collective bargaining agreement) are strongly correlated with a country’s postwar political tradition. Read more…

Categories: Political Economy
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